Why are financial advisors updating retirement advice? Here’s what it means for you

A volatile market and economic uncertainty have led financial advisors to change how they help clients make decisions.

Two-thirds of financial advisors are changing their retirement investment advice for clients, according to a new report from the Alliance for Lifetime Income released Thursday.

“Rising inflation, uncertainty about Social Security and Medicare, and overall concerns about the cost of living have led us to adjust both the conversations we’re having and the strategies we’re recommending,” said Nathan Sebesta, a certified financial planner.

Advisers say clients should consider their withdrawal strategy and look to create buffers against volatility. Sebesta said he encourages his clients to consider gradual retirement or part-time work to create more stability amid all the uncertainty.

“In many cases, we help clients completely rethink retirement,” Sebesta said.

Sequence risk is our top priority

He also said he is having more conversations with clients about building cash reserves and rethinking allocation models to reduce serial risk.

Sequence risk, or sequence of returns risk, is the risk that the timing of withdrawals from a retirement account could negatively affect an investor’s overall return. When you retire, you start withdrawing money regularly instead of contributing new money to your account. In bull markets, these withdrawals are partially offset by new gains, but bear markets see no new gains.

While sequence risk is largely a matter of luck, it’s essential to remember these things when planning for retirement, financial advisors said. Retirees who rely strictly on their portfolio to live on in retirement may feel the brunt of a bear market, which could lead to decisions to change their retirement plan.

Because there’s so much that’s unpredictable when it comes to retirement saving, Scott Bishop, another certified financial planner, said there’s no one-size-fits-all piece of advice. However, his advice had to be modified. In order to create a sustainable plan, clients need to nail down two important details, he said.

There is no ‘cohort number’ or ‘withdrawal rate’ that would be relevant if they did not know the amount of each needs To spend and then He wants “To spend on top of that,” Bishop said.

Different assets can help reduce volatility

Bishop said he works with clients to create “safety pools” in retirement that can help smooth out market volatility. These buckets contain one to three years’ income in cash or “near-cash” liquid assets, such as savings accounts or certificates of deposit.

In Sebesta’s recent experience, more clients have become interested in guaranteed income solutions such as annuities. They also look for tax efficiencies, such as opening and using income-generating tax-deferred accounts. Interest in flexible spending strategies, which use a flexible spending account (FSA) to pay for health care costs with pre-tax dollars, has also increased.

Bishop said he’s also looking into other changes that fit his clients’ wants and needs when it comes to retirement.

“[I’m] Consider things like private credit to boost returns beyond publicly traded bonds, and add private real estate and private equity as well [to clients’ plans] To add diversification and perhaps more growth and income versus stocks.